Cable television

The $61 billion proposal

The latest plot twists in a continuing television drama

SPURNED suitors usually nurse the wounds of rejection quietly. Not in the cable-television industry. Having unsuccessfully approached Time Warner Cable (TWC) twice last year, Charter Communications, a rival American cable operator, has gone public with a new proposal. On January 14th Charter announced a bid valuing TWC at $61 billion including debt, offering $132.50 a share compared with the $95 or so they were fetching early last June, when rumours of its approach emerged.

Charter’s boss, Tom Rutledge, wrote a public letter to Robert Marcus, the boss of TWC, beseeching him to consider the offer, and held a conference call to seek shareholders’ backing for the bid. TWC’s executives are playing hard to get: they want a higher price, and vow not “to let Charter steal the company”.

For those who have been following this cable drama, it has been a question of when, not if, the industry would consolidate. TWC is America’s second-largest cable operator by subscribers, after Comcast, and Charter is the fourth-largest. John Malone, one of the industry’s pioneers, whose company, Liberty Media, is Charter’s biggest shareholder, is among many in the business calling for mergers. This would help cable firms fend off competition from satellite operators, phone companies and streaming services like Netflix, which are poaching their customers for internet service and for films and TV shows.

Besides letting them cut costs—Charter reckons a merger with TWC could save at least $500m a year—scale would also give cable operators more clout when negotiating with content providers over the rates they have to pay to carry their channels. Last year TWC got into a fight with CBS over its fees, which led to a blackout of CBS channels for a month until the two reached agreement. TWC lost more than 300,000 customers during the third quarter, many of them as a result of this spat.

With its latest proposal judged still inadequate, Charter will have to decide whether to offer more. Other cable firms, such as Comcast, may enter the fray, offering to buy all or part of TWC. Pay-television is not a growth business for cable operators, so they must become more creative to increase sales. One area of experimentation is to offer broadband along with a “light” television package, as several cable providers are doing in certain markets, to appeal to wallet-wise youngsters. Others are selling metered broadband, with the cost tied to usage.

Cable firms and other internet providers may soon be free to try even more radical experiments with pricing. On January 14th an appeals court struck down federal rules that required them to treat all internet traffic equally—a policy called “net neutrality”. If the court’s ruling prevails, this would let cable firms and other internet providers start demanding payment from bandwidth-hungry suppliers of video, such as Netflix, for speedy delivery to viewers. Besides giving cable firms a juicy new source of income, this could curb the expansion of an increasingly powerful group of competitors for providing packages of video content. The cable firms could also favour video sites in which they had an interest: for example, Comcast part-owns Hulu, a rival to Netflix.

As any fan knows, cable-TV dramas tend to be long-running and full of plot twists. This one will probably be no different. Stay tuned.